Koenen en Co is lid van Nexia International, het wereldwijde netwerk van onafhankelijke accountants- en advieskantoren Debt vs Equity in the Netherlands mr. Giovanni Armino Tax Partner at Koenen en Co Sittard, the Netherlands

2 1A. Thin Cap Rules Article 10d Corporate tax law)  1.A.1 Only applicable for tax purposes  1.A.2 Not limited to intercompany loans but restriction cannot exceed interest paid to affiliated parties

3 A. The ratio’s  1.A.3 Ratio’s  1:3 Ratio:  Too much debt if:  debt is more than 3x equity ánd  the debt exceeds €  Concern Ratio:  Too much debt if:  Average debt of taxpayer is more than:  Average debt group x groupfactor (=debt-equity ratio of the group)

4 1A. Case (1) 1.A.4 Fiscal 1 jan31 decAverage Equity Total receivables000 Loans affiliated parties Loans non-affiliated parties Total debts Total receivables and debts

5 1A. Case (2) 1:3 Ratio 1.A.4 Factor 3 multiplied with equity3 Franchise € Permitted debt Too much debt Too much debt in percentage97,50%

6 1A. Case (3) 1:3 Ratio 1.A.4 Total received interest from affiliated parties0 Total interest paid to affiliated parties Total interest paid to non-affiliated parties Total paid interest Total received and paid interest to affiliated parties Non-deductible based on percentage Non-deductible ( restricted to amount paid to affiliated parties )

7 1B. Reclassification of loan  1.BNegative equity does not lead to an automatic reclassification of the intercompany loans

8 1C. Deductability of the interest  1.C.1 In the case percentage too much debt is 97,5% but restricted to amount paid to affiliated companies (in case € )  1.C.2 No difference between intercompany interest and bank interest  1.C.3 No standardisation on basis of transfer pricing principle’s

9 1D. Other interest restrictions 1.D  Loans can (based on case law) qualify as equity instead of debt  Interest on debts which are related to an equity refund or a capital distribution to a related party are not deductible  Restrictions on interest deductibilty on  - Interest free (or low interest bearing) loans with long maturity  - loans for the acquisition of own shares

10 1E. Depreciation of the value of the claim When Parent Company decides to depreciate the value:  1.E No consequences for subsidiary (condition: depreciation done for business reasons)

11 1F. Waive the loan Parent Company decides to fully or partial waive the loan  1.F This leads to a profit but a exemption may be be applicable (waiving the loan only possible if done for business reasons)

12 1G. Conversion of the loan into equity When Parent-company decides to convert the loan into equity:  1.G No consequences for the subsidiary, except Thin cap calculation: increasing equity

13 2A. Writing down the loan  2.A Writing down is possible if loan is (partial) deficient due to losses of the subsidiary  2.B Writing down is deductable  2.C Writing down only possible if classified as loan Important: anti abuse rule if the loan (which is written down) is transfered to related party

14 2B. Waive the loan  2.A.1 Loss leads to a deductable expense  2.B.2 Not relevant whether the loan is already (partial) written down

15 2C. Conversion of loan into equity  2.C.1 Conversion has no consequences  2.C.2 If it concerns a depreciated loan than anti-abuse rule for parent-company is applicable: depreciation is added to profit